Determinacy, learnability, and monetary policy inertia

James Bullard, Kaushik Mitra

    Research output: Contribution to journalArticlepeer-review

    44 Citations (Scopus)

    Abstract

    We show how monetary policy inertia can help alleviate problems of indeterminacy and non-existence of stationary equilibrium observed for some commonly studied monetary policy rules. We also find that inertia promotes learnability of equilibrium. The context is a simple, forward-looking model of the macroeconomy widely used in the rapidly expanding literature in this area. We conclude that this might be an important reason why central banks in the industrialized economies display considerable inertia when adjusting monetary policy in response to changing economic conditions.

    Original languageEnglish
    Pages (from-to)1177-1212
    Number of pages36
    JournalJournal of Money, Credit and Banking
    Volume39
    Issue number5
    Publication statusPublished - Aug 2007

    Keywords

    • monetary policy rules
    • determinacy
    • learning
    • instrument instability
    • RATIONAL-EXPECTATIONS
    • TERM STRUCTURE
    • RULES
    • INSTRUMENT
    • STABILITY
    • MODELS

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